Is Auctioning Your Home a Good Idea?

When you need to sell quickly, auctioning your home may be the way to go. The traditional real estate process can take months, costing you a fortune in the process. And there’s no guarantee that you’ll be successful. Auctioning your home affords you a bit more freedom and convenience, but is it a good idea? There are a number of pros and cons to this increasingly popular process. 

Selling a House at Auction — What it Entails 

Auctioning your home is pretty much what it sounds like: you put your house on the market and allow potential buyers to bid on it. If a bidding war ensues, you may get more than the market value of your home. But if there are few bidders, you may take a huge loss. 

The first step is to find an auctioneer or online bidding platform that specializes in these kinds of sales. When you work with an auctioneer, the auction may take place in one day. However, if you register with an online platform, your home may be placed on the market for a specified period of time, usually no more than 30 to 45 days, during which time bids are accepted. 

Depending on the platform, bids may be accepted online, offline, or both. At the close of the listing period, the highest bidder is entitled to purchase the home. As soon as they win the auction, they’ll be required to put down the agreed-upon deposit. 

The auction part is easy. Most of the work is in the marketing and buildup. You have to find the right auctioneer/platform and work with them to develop the most effective plan of action for your home. This usually involves in-depth market analysis, inspections, appraisals, and interviews. Then you have to set up an airtight marketing campaign that will ensure your home is seen by the greatest number of qualified buyers; your auction company should assist you with this, but you’ll still need to do some of the work on your own. For instance, you might: 

  • Post flyers and brochures in the neighborhood 
  • Share your listing on relevant neighborhood apps 
  • Market your home auction via social media (with organic posts and sometimes paid advertising) 

The more aggressively you market your home, the more potential buyers you’re likely to reach. 

Selling a House at Auction vs For Sale by Owner

Selling at auction is sometimes confused with the “For Sale by Owner” (FSBO) process, but these are two completely different approaches. In an FSBO sale, the seller lists and markets their home independently without a realtor. There are no bids or timelines; the home remains on the market until you accept an offer. It’s just like a traditional sale except that you’re in the driver’s seat.  

There are a few notable benefits to an FSBO sale: 

  • You don’t have to pay the typical 3% commission fee that real estate agents impose 
  • You have complete control over the listing price and details 
  • You’re in full control of the marketing 

Of course, if you don’t have real-world marketing experience and you’re not familiar with the legal complexities of selling a home, an FSBO arrangement could be costly and frustrating. It may even result in significant legal liability if you don’t follow the law to the letter. 

When you auction your home, you still have to do some of the marketing on your own, but you have an expert overseeing the financial and legal aspects of the sale, which can be invaluable. 

Benefits of Selling a Home at Auction

When you auction your home: 

  • The sale process is simple and straightforward; you don’t need to haggle or negotiate with potential buyers.
  • You set the terms of the auction, including the dates, deadlines, and minimum reserve price (if you decide to set up a reserve). 
  • The whole process is quick compared to a traditional home sale. You can close in as little as 30 days, sometimes less. 
  • Your home sells as-is, so you don’t have to worry about making repairs or satisfying arbitrary buyer demands. 
  • Sales are final regardless of inspection or appraisal reports.
  • All real estate commissions are paid by the buyer.  
  • The impending deadline and competitive nature of the auction can inspire buyer urgency. 
  • The details of the auction are handled by experienced professionals. 

Of course, there are a few notable disadvantages as well. 

Drawbacks of Selling at Auction 

If you’re not in a hurry to move and you want to guarantee the maximum value for your home, an auction might not be for you. 

  • There’s the risk that your home sells for far less than its market value—unless you set up a reserve price, which can discourage bidding and reduce the size of your buyer pool. 
  • Though this is slowly changing, there still exists an unfair stigma in the world of home auctions. Some consumers assume that auctions are intended for distressed properties. 
  • Much of the success of your auction is contingent on your own ability to market the home effectively. 
  • Bidders are required to meet stricter terms than they would in a traditional real estate sale, so your buyer pool is limited. This can be especially problematic if your home is in disrepair, as highly qualified buyers may be less inclined to bid. 

When deciding whether to auction your home, consider if the benefits outweigh the drawbacks in your situation. 

What Is a Reserve in a Home Auction? 

We’ve talked a little bit about reserve pricing, but what is that, exactly? A reserve price is the minimum amount of money for which you’re willing to sell the home. So if you want to sell your home at auction but you’re afraid of losing money, you might set up a reserve to guarantee a minimum sale price. 

Let’s say that your home’s market value is $250,000. You know that an auction might not bring in the full amount, but you don’t want the sale to be a total loss. If you set the reserve at $220,000 you know your home will sell for no less than that amount. If the maximum bid is $210,000, the auction closes without a buyer and you’re free to decide whether to relist it or choose an alternative selling strategy. 

Once again, the downside of setting a reserve price is that some buyers are turned off by the notion that their bid may be useless. As a result, a reserve price may reduce the total number of bids and discourage bidding wars, ultimately resulting in a lower closing price. 

Tips for Auctioning Your Home Successfully 

If you want your home auction to be successful, there are a few important steps you should keep in mind: 

  • Work with an auctioneer or platform that specializes in your type of home. For instance, you don’t want to work with a high-end luxury platform if your home is only valued at $150,000. 
  • Decide whether or not to include a reserve price. There are risks either way, but once your auction company completes their research, they can help you to make an educated decision based on the current market conditions and data from similar home sales in your area. 
  • Know how much you’re paying before signing on. Like a real estate agent, the auctioneer takes a commission. Sometimes they’ll take 6% of the total sale price, but in other cases it can be as high as 10%. Some auctioneers hold the buyer responsible for paying the commission while other auctioneers split the commission costs between the buyer and seller. Pay close attention, and try to find a reputable platform that won’t take more than 6% of the total sale. 

If the home fails to attract bidders or meet its reserve price, you can always choose an alternative sale strategy. 

Alternatives to Selling at Auction 

If you feel that auctioning your home isn’t right for your situation, you can always hire a real estate agent and go the traditional route—list your home in the MLS, negotiate with buyers, and close when you receive a satisfying offer. However, if you’re researching how to auction your home, there’s a good chance that time isn’t on your side. Maybe you need to be out quickly, but you don’t want to deal with the risks associated with an auction. 

There is another way: you can sell your home for cash to a real estate investor. With this method: 

  • You can close in as little as a week 
  • There are no real estate commissions 
  • You’re not responsible for any repairs 
  • You don’t have to guess what your home will sell for 

At Get Fair Home Offers, we buy homes for cash in Los Angeles and throughout Southern California. We’ll make a competitive, no-hassle offer on your home. If you like the offer, we’ll write you a check so you can move quickly and easily. We’ll take care of the cleaning and any repairs, and we can even cover the closing costs in many cases. Contact us today to get started, and discover the easier way to sell your home quickly.

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